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GATX Corporation (GMT - Analyst Report), leading railcar leasing company, reported fourth-quarter 2013 adjusted earnings of $1.14 per share, beating the Zacks Consensus Estimate of 93 cents. The results showed a massive improvement from adjusted earnings of 56 cents earned a year ago.

Adjusted earnings for the fourth quarter of 2012 excluded the impact of benefits from tax adjustments and other items of $2.8 million (6 cents per share).

Revenues increased 7.5% year over year to $356.6 million, above the Zacks Consensus Estimate of $348 million.

For 2013, the company reported adjusted earnings per share of $3.50, up from $2.81 a year ago. Revenues for the year totaled $1,321.0 million, higher than $1,243.2 generated in 2012.

Operating expenses increased to $289.2 million from $276.7 million in the year-ago quarter. For the full year, operating expenses were up 6.8% to $1,072.6 million.   

Segment Results

Profit from the Rail North America segment increased to $75.2 million in the fourth quarter from $59.8 million in the year-ago quarter driven by higher lease rates and asset remarketing activities.

GATX’ Lease Price Index (LPI) improved substantially to 37.1% from 32.3% in the year-ago quarter. Further, the term of lease renewals was 60 months versus 65 months in the comparable quarter last year.

The North American fleet totaled approximately 109,113 cars compared with 109,551 cars at the end of fourth-quarter 2012. Fleet utilization increased to 98.5% from 97.9% in the year-ago quarter.

Adjusted profit from the Rail International segment was $19.6 million compared with adjusted (excluding the negative impacts of $2 million in pre tax and other items) income of $12.5 million in the year-ago quarter. The European wholly owned tank car fleet totaled approximately 21,922 compared with 21,840 in the year-ago quarter. Fleet utilization was 96.6% versus 95.1% in the year-earlier quarter.

Profit from Portfolio Management was $26.9 million in the fourth quarter against a loss of $1.4 million in the year-ago quarter. The segment currently comprises approximately $857 million worth of owned assets and third-party managed portfolios worth approximately $125 million.

Profit from the American Steamship Company (ASC) segment was $5.1 million compared with $8.2 million in the year-ago quarter. Weather hindrances were primarily responsible for the decline in profits.

Liquidity

The company exited 2013 with cash and cash equivalents of $379.7 million compared with $234.2 million in 2012.

Dividend & Share Repurchase

GATX increased quarterly dividend payment by 6.5% to 33 cents. The increased dividend will be paid on Mar 31, 2014 to shareholders of record as on Feb 28, 2014. The company has also initiated a new share repurchase program worth $250 million following expiry of its previous $200 million share buyback program.

GUIDANCE

GATX expects its full-year 2014 earnings in the range of $3.85–$4.05 per share.

The company expects higher profit in its Rail North America segment driven by lease revenue growth. The company projects lease rates to be on the higher end for most tank car types. In addition, it expects demand to continue rise for railcars and expects to tap this opportunity by winning long-term lease contracts. 

For the Portfolio Management segment, GATX expects to gain from its partnership with Rolls-Royce. However, lower remarketing opportunities in its owned portfolio could trim down profits for this segment. 

In ASC, the company expects to register improved tonnage due to recapturing opportunities.

Further, GATX Rail Europe is expected to gain on gradual improvement in market condition, resulting in higher profits in 2014. The company has accelerated its investment in the past two years in this business and expects to continue in the current year.  

OUR ANALYSIS

We expect market fundamentals to continue to improve in 2014 for GATX, supporting higher lease rates, carloads, increased asset utilization and remarketing opportunities. The company remains focused on expanding its asset base to enhance its long-term performance. Further, the tie-up with Rolls Royce is generating strong results, strengthening GATX’ competitive position.

The company currently has a Zacks #3 (Hold).

Other Stocks to Consider

Other stocks worth considering within the sector include Trinity Industries Inc. (TRN - Snapshot Report), American Railcar Industries, Inc. (ARII - Snapshot Report) and Ryder System, Inc. (R - Analyst Report). While Trinity Industries sports a Zacks Rank #1 (Strong Buy), American Railcar and Ryder System have a Zacks Rank #2 (Buy).

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